Beneficiary accounts vs POD accounts

What is the difference between a beneficiary account and a POD account?  A POD account is also known as a TOD and an ITF account.  POD stands for Payable on Death.  TOD stands for Transfer on Death.  ITF stands for In Trust For.  All of these are methods to avoid probate on bank and investment accounts.

Diane: I was wondering if you could tell me the difference between a beneficiary and a payable on death for a bank account. 

Attorney Tom Olsen: Okay. Both of them are great tools for avoiding probate. A beneficiary is typically used for a life insurance policy, IRA, 401k or an annuity. POD, payable on death, is used to avoid probate on a bank account, checking, savings, money market or CD.  You will keep those accounts in your name only but make POD, payable on death, to your kids. If you do that and you pass away, the only thing your children will need to do is show the bank your death certificate and the bank will turn the money over to them without probate.

Diane: If I have a spouse and we don’t have a joint account, and we do have a will that leaves everything to the other but the accounts are not joint accounts, what would be the best way to avoid probate on our bank accounts?

Attorney Tom Olsen: Well, Diane if you have an account in your name only, and you have a will that says, “When I die I leave everything to my husband.” If you make that bank account POD for your kids, what happens to that bank account will not be governed by your will it will be governed by your POD form and that bank account money will go to your children. It’s really a way for you to dispose of assets outside your will.

Diane: Okay. So we really should just do a little house cleaning and audit of our accounts to make sure they’re all labelled correctly.

Chrissy: Exactly. Including making sure that if it’s an individual account, Diane, that if you name your spouse first, you want to make sure that then your kids are the alternate or contingent beneficiaries on those forms.